Costco CEO Craig Jelinek Leads the Cheapest, Happiest Company in the World

How this week's cover got made

Businessweek, June 6, 2013

How this week’s cover got made

Joe Carcello has a great job. The 59-year-old has an annual salary of $52,700, gets five weeks of vacation a year, and is looking forward to retiring on the sizable nest egg in his 401(k), which his employer augments with matching funds. After 26 years at his company, he’s not worried about layoffs. In 2009, as the recession deepened, his bosses handed out raises. “I’m just grateful to come here to work every day,” he says.

This wouldn’t be remarkable except that Carcello works in retail, one of the stingiest industries in America, with some of the most dissatisfied workers. On May 29, Wal-Mart Stores (WMT) employees in Miami, Boston, and the San Francisco Bay Area began a weeklong strike. (A Walmart spokesman told MSNBC the strike was a “publicity stunt.”) Workers at an Amazon.com (AMZN) fulfillment center in Leipzig, Germany, also recently held strikes to demand higher pay and better benefits. (An Amazon spokesman says its employees earn more than the average warehouse worker.) In its 30-year history, Carcello’s employer, Costco, has never had significant labor troubles.

Costco Wholesale (COST), the second-largest retailer in the U.S. behind Walmart, is an anomaly in an age marked by turmoil and downsizing. Known for its $55-a-year membership fee and its massive, austere warehouses stocked floor to ceiling with indulgent portions of everything from tilapia to toilet paper, Costco has thrived over the last five years. While competitors lost customers to the Internet and weathered a wave of investor pessimism, Costco’s sales have grown 39 percent and its stock price has doubled since 2009. The hot streak continued through last year’s retirement of widely admired co-founder and Chief Executive Officer Jim Sinegal. The share price is up 30 percent under the leadership of its new, plain-spoken CEO, Craig Jelinek.

Costco CEO Craig Jelinek

Photograph by Ryan Lowry for Bloomberg Businessweek

Costco CEO Craig JelinekDespite the sagging economy and challenges to the industry, Costco pays its hourly workers an average of $20.89 an hour, not including overtime (vs. the minimum wage of $7.25 an hour). By comparison, Walmart said its average wage for full-time employees in the U.S. is $12.67 an hour, according to a letter it sent in April to activist Ralph Nader. Eighty-eight percent of Costco employees have company-sponsored health insurance; Walmart says that “more than half” of its do. Costco workers with coverage pay premiums that amount to less than 10 percent of the overall cost of their plans. It treats its employees well in the belief that a happier work environment will result in a more profitable company. “I just think people need to make a living wage with health benefits,” says Jelinek. “It also puts more money back into the economy and creates a healthier country. It’s really that simple.”

In February, Jelinek set Costco’s convictions in ink, writing a public letter at the behest of Nader, urging Congress to increase the federal minimum wage for the first time since 2009. “We know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty,” he wrote.

Jose Almaraz, 6 years at CostcoPhotograph by Ryan Lowry for Bloomberg BusinessweekJose Almaraz, 6 years at CostcoThe letter barely moved the needle. Although President Obama echoed Jelinek’s sentiment and called for a $9-an-hour wage in his State of the Union address, Congress is deadlocked on the issue. But Jelinek’s letter had a secondary effect. It cast a brighter light on Costco’s philosophy and created a stark contrast with its competitors.

That juxtaposition raises an important question: Can the rest of corporate America become more like Costco? Or will Costco, buffeted by the same disruptive changes affecting all of retail, be forced to become more like everyone else?

The Issaquah (Wash.) headquarters of Costco, 20 miles from Seattle, radiate frugality. The floor of the executive wing is covered in faded blue carpet, and in the boardroom, six faux-wood tables—which would look at home in a public school teachers’ lounge—are jammed together. On the walls are several Van Gogh and Picasso prints (less than $15 at Art.com), along with two badly staged photographs of the company’s board of directors. In one, a picture of Jelinek’s head has been awkwardly taped onto the frame, hovering above a Weber grill.

Stone is a senior writer for Bloomberg Businessweek in San Francisco. Follow him on Twitter @BradStone.
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